Do I Owe Sales Tax to Maine?
Do you know if your business must register as a retailer with the Maine Revenue Services requiring you to collect and remit Maine sales taxes and file Maine sales tax returns? Failure to comply with Maine's mandatory registration and collection statute could result in substantial penalties. You may be under the impression that if your business does not have a "physical" location in Maine such as a distribution center or an office, or you do not have a salesperson or special agent soliciting sales on your business' behalf in Maine, then you are not "doing business" in Maine, and therefore, your lack of "business nexus" means that you are not required to register as a retailer. You may be in for quite a surprise to learn that Maine's reach applies to more than a company that has business nexus but also to a company that has "economic nexus". Below is a brief summary for businesses that are subject to Maine's registration requirements as a retailer under both the business nexus rules and/or the economic nexus rules.
Under the business nexus standard, Maine requires a seller or lessor to have some form of physical presence in the state. Physical presence in Maine includes an office, manufacturing facility, distribution facility, warehouse or storage facility, or sales or sample room. It also includes having employees or independent contractors working in Maine. In addition, business nexus includes a lessor that leases property in Maine, executes a "lease in lieu of purchase" in Maine, accepts a lessee's option to purchase in Maine, or sells previously rented property in Maine.
There are specific exclusions for certain activities by a business that do not subject it to Maine registration. These activities include attendance at a trade show, seminar or convention, holding a business meeting in Maine, soliciting business by way of catalogs, flyers, telephone or electronic media when delivery of such goods is made in Maine by the U.S. mail or by an interstate third-party common carrier.
Although a business may not have "business nexus" as discussed above, it is possible for a business to have "economic nexus", which will result in the business being a retailer in Maine. Under the economic nexus standard, a Maine out-of-state business is a retailer in Maine if it has:
- Total gross revenue from the sales of tangible personal property, products transferred electronically, or taxable services in Maine in the previous calendar year or current calendar year exceeding $100,000, or
- At least 200 sales of tangible personal property, products transferred electronically, or taxable services in Maine in the previous calendar year or the current calendar year.
In addition, Maine has a rebuttable presumption that a business is a retailer based on its affiliate's activities in Maine, the use of intellectual property in Maine, as well as a business' ability to establish and maintain a market in Maine. This means that if your business operates an online retail store outside of Maine but it is an affiliate of a corporation that operates a bricks-and-mortar retail store in Maine, then you must register in Maine and collect and remit sales and use tax. It also means that if your business has an arrangement with a business in Maine where you allow the use of your trademarks, service marks or trade names then your business needs to register in Maine as a retailer and collect and remit sales and use tax. Further, if your business is trying to grow and expand and you allow your products to be promoted in Maine, then under the Maine statute, your business is a retailer in Maine and must collect and remit sales and use tax.
Maine's rebuttable presumption also applies if you have an arrangement with a company in Maine that delivers, installs, assembles or performs maintenance services for your customers in Maine, or you allow a company located in Maine to deliver or pick up property for your Maine customers. Accordingly, the activities of your business, your affiliate's business as well as third party companies that perform services or deliver your products to customers in Maine, can create sufficient economic nexus for your business to make you a retailer in Maine. A business may rebut these presumptions by demonstrating that the affiliate's or other company's activities in Maine are not significantly associated with your business' ability to establish or maintain a market in Maine.
In addition, a business is subject to Maine's jurisdiction as a retailer when it provides consideration to one or more persons who while in Maine:
- Directly or indirectly refers potential customers, whether by a link on an Internet website, by telemarketing, by an in-person presentation or otherwise, to the business; and
- The cumulative gross receipts from retail sales by the business to customers in Maine who are referred by all such persons are in excess of $10,000 during the preceding 12 months.
A business may rebut this presumption by submitting proof (in the form of sworn, written statements) that the person with whom the business has an agreement did not engage in any activity within Maine that was significantly associated with the business's ability to establish or maintain its market in Maine during the preceding 12 months.
Maine can assess civil penalties for failure to file a return and failure to pay taxes when due. Maine can assess a penalty of 10% of the tax due if a sales return is filed late. If the return is not filed within 60 days after receipt of a formal demand for the return to be filed, then the penalty can increase to 25% of the tax due. Failure to pay the sales tax required can be charged a penalty of 1% of the unpaid tax for each month or fraction thereof during which the failure continues and up to a limit of 25% of the unpaid tax. It is important to note that under Maine law, the owner(s) and person(s) who control the finances of a business may be liable for the unpaid sales and use taxes. Furthermore, if the business owner sells the business and has unpaid sales and use taxes, the purchaser can be held liable as a successor for the amount of the unpaid taxes.
Therefore, it is important to understand Maine's requirements in order to fulfill your Maine tax compliance obligations. If you have any questions regarding your tax compliance requirements with Maine, please contact either Cheryl Johnson or Jen Green.